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Is DCA a Sound Strategy for Crypto?

During the last couple of years, the popularity of various automation solutions in the crypto industry skyrocketed. Many traders fell victim to promising automated strategies with fancy names like DCA (distributed cost average) and Arbitrage. While the latter sounds good at least on paper, the former is a trap that may be devastating to many people who put their livelihood into buying crypto.

DCA is a strategy revolving around buying small amounts of assets over a long period to reduce the average price of purchases. It is a sound idea for assets with strong fundamentals like government bonds and blue chip stocks, but it rarely works for assets vulnerable to high volatility and influence from external factors.

For some reason, the whole crypto community became enchanted by the idea of slowly accumulating Bitcoin or Ethereum with DCA buying. Many automation vendors started promoting their DCA bots specifically for crypto spot markets. On paper, the strategy sounds great: you buy small amounts of BTC and hold coins for years. Slowly, your portfolio grows and appreciates. Zero risks and high rewards!

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However, the reality sliced down these dreams during the second quarter of 2022 when the whole market lost over 60% of value due to macroeconomic factors and loss of confidence in the bright future of many blockchain projects. It became painfully obvious that such volatile assets should not be purchased using DCA.

What should you do?

Taking profits when you can is the best strategy for anyone invested in crypto. Only BTC and ETH may have a chance to appreciate over a long period. However, recent events showed that the crash looks more like a long-term trend and we are far from the moment when these assets will return to the glorious heights they achieved at the beginning of 2022.

If you are in the green and have most of your capital invested in crypto, sell to extract value now. Only true enthusiasts who can afford to waste a portion of their portfolio should hold these coins and continue buying. Other traders should be a little bit more realistic about the prospects of the whole crypto industry.

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Alexander Fyodorov (Ukraine)

Alexander Fedorov is a new writer on Tokenhell, his articles are about on cryptocurrency news and platform reviews. We recommend keeping an eye on his latest posts as they are always very informative and super interesting.

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